What Liability Insurance Does and Why States Require It

Liability insurance covers damage or injuries you cause to someone else

Liability insurance is the part of your car insurance that pays for injuries or property damage you cause to another person when you're at fault in an accident. If you hit another car, a pedestrian, or someone's fence, your liability coverage pays their medical bills, vehicle repairs, or other losses — up to the limit you chose when you bought the policy.

Every state except New Hampshire requires you to carry liability insurance before you can legally drive. The state sets a minimum amount you must carry, but that minimum is often too low to cover a serious accident. If you cause damage that exceeds your liability limit, you become personally responsible for the rest.

Liability insurance does not cover damage to your own vehicle or injuries to you. That's what collision, comprehensive, and medical payments coverage are for. Liability is purely about protecting the other person.

Key Takeaways

• Liability insurance pays for injuries or property damage you cause to someone else, up to the limit you choose.
• Every state except New Hampshire requires a minimum amount of liability coverage before you can register and drive a vehicle.
• State minimums are often low — typically $25,000 to $100,000 — and may not cover a serious accident, leaving you to pay the difference.
• If you cause an accident, your insurance company handles the claim and pays the other person directly, rather than you paying them yourself.
• Liability coverage does not pay for damage to your own car or your own medical bills.

How liability limits work and what the numbers mean

Liability limits are written as three numbers, like 25/50/25. The first number is the maximum your insurance will pay for one person's injuries. The second is the maximum for all injuries in one accident. The third is the maximum for property damage.

So a 25/50/25 policy means your insurance pays up to $25,000 for one injured person, up to $50,000 total for all injured people in that accident, and up to $25,000 for property damage. If you cause an accident that injures three people and damages two cars, and the total claims come to $80,000, your insurance pays $50,000 (the per-accident limit for injuries) plus $25,000 (the property damage limit), and you owe the remaining $5,000.

Your state sets a minimum you must carry. Most states require something like 15/30/5 or 25/50/25, but the exact numbers vary by state. You can choose higher limits than the minimum — many people carry 100/300/100 or more — and higher limits cost only a little more per month.

What your liability insurance actually pays for

When you cause an accident, your liability insurance covers the other person's medical treatment, lost wages while they recover, pain and suffering, vehicle repairs or replacement, and damage to their property. It also covers your legal defense if they sue you, and it pays any judgment against you up to your limit.

Your insurance company assigns a claims adjuster to investigate the accident. They contact the other person, collect police reports and witness statements, and determine who was at fault. If you're found at fault, your insurance pays the other person's claim directly. You don't write them a check yourself.

If the other person's damages exceed your liability limit, they can sue you personally for the difference. This is why carrying limits higher than your state's minimum is important — a serious injury can easily cost $100,000 or more in medical bills and lost income.

State minimum requirements vary widely

Every state except New Hampshire requires liability insurance, but the minimum amount differs. Some states require as little as 15/30/5 (meaning $15,000 per person, $30,000 per accident for injuries, and $5,000 for property damage). Others require 25/50/25 or higher. A few states allow you to meet the requirement by posting a bond or proving you have enough savings to cover claims, but liability insurance is the standard way.

If you drive in multiple states, you need to meet the requirement of the state where you're driving. Your insurance company will tell you what your state requires when you buy a policy. If you're caught driving without the required coverage, you face fines, license suspension, and registration suspension.

New Hampshire does not require liability insurance, but if you cause an accident and don't have it, you're personally liable for all damages. Most New Hampshire drivers carry insurance anyway because the financial risk is too high.

What happens if you cause an accident and don't have enough coverage

If you're at fault in an accident and your liability limit is too low to cover the other person's damages, you are personally responsible for the difference. The other person can sue you in civil court to recover it. If they win, they can garnish your wages, place a lien on your home, or seize your bank accounts to collect the judgment.

This is why insurance companies and financial advisors recommend carrying liability limits well above your state's minimum. The cost difference between a 25/50/25 policy and a 100/300/100 policy is usually $10 to $30 per month, but the protection is worth far more if you cause a serious accident.

If you have significant assets — a home, savings, investments — you should consider an umbrella policy in addition to your car insurance. An umbrella policy covers claims that exceed your car insurance limits and costs $150 to $300 per year for $1 million in coverage.

Liability insurance versus other types of car coverage

Car insurance policies usually include several types of coverage, and it's straightforward to confuse them. Liability covers damage you cause to someone else. Collision covers damage to your own car from hitting another vehicle or object. Comprehensive covers damage from theft, weather, or vandalism. Medical payments covers your own medical bills after an accident, regardless of who was at fault.

In most states, liability is the only coverage required by law. Collision and comprehensive are usually required only if you're financing or leasing a car — the lender wants to protect their investment. Medical payments is optional in most states but useful if your health insurance has a high deductible.

If you cause an accident, your liability coverage pays the other person's claims. If someone else causes an accident and hits you, their liability coverage pays your claims. If you hit something and don't have collision coverage, you pay for your own repairs.

How to choose the right liability limit for your situation

Start with your state's minimum, but don't stop there. Consider how much you could lose in a lawsuit. If you own a home, have savings, or earn a good income, you have more to protect. A serious accident can result in medical bills exceeding $100,000, especially if someone is permanently injured.

A common recommendation is to carry liability limits equal to your net worth, or at least $100,000 to $300,000 if you have significant assets. If you have little savings and rent your home, your state's minimum may be adequate, though higher limits still cost very little.

Talk to your insurance agent about your situation. They can explain what your state requires and what limits make sense for you. You can also raise or lower your limits anytime your policy renews, so you're not locked into one choice forever.

Frequently Asked Questions

Does liability insurance cover me if I'm driving someone else's car?

Usually yes, if you have permission to drive it. Your personal liability coverage typically extends to any car you drive regularly. If you're borrowing a friend's car occasionally, your coverage applies. The car owner's insurance is secondary. If you cause an accident, your insurance pays first, then the car owner's insurance covers anything above your limit.

What if the other person was partially at fault for the accident?

It depends on your state's fault rules. In "at-fault" states, the person most responsible for the accident pays. In "no-fault" states, each person's own insurance pays their own damages regardless of who caused it. Your insurance company investigates and determines fault based on police reports and evidence. If you're found partially at fault, your liability coverage still applies, but the amount paid may be reduced based on your percentage of fault.

Can I be sued even if my insurance pays the claim?

Yes. If the other person's damages exceed your liability limit, they can sue you personally for the difference. For example, if your limit is $50,000 and their medical bills are $80,000, they can sue you for the remaining $30,000. This is why carrying higher limits or an umbrella policy is important if you have assets to protect.

Does liability insurance cover intentional damage or criminal acts?

No. Liability insurance covers accidents where you're at fault. It does not cover intentional harm, criminal acts, or damage you cause on purpose. If you deliberately hit someone's car or property, your insurance will deny the claim and you'll be personally liable.

What if I hit a parked car and leave the scene?

Leaving the scene of an accident is a crime in every state. If you're caught, you face criminal charges, fines, and license suspension in addition to civil liability. Your insurance may also deny the claim if you don't report the accident promptly. Always stop, exchange information, and report the accident to police and your insurance company.